Prepare to go cashless or pay the price

One in three consumers will abandon a purchase if they cannot pay for it digitally.

With more consumers planning to drop cash and go fully digital with their payments in 2022 and in years to come, and with one in three abandoning a purchase when not given a digital payment option, small businesses really have no other way to go than shift to cashless.

Fortunately, a majority (95%) of small and medium enterprises (SMEs) are planning to accept contactless payment or some form of digital payment option in 2022, according to Visa.

For the remaining 5%, they might have no choice but to hop on to the cashless movement. “It is a matter of time for the cashless transaction to further penetrate into SMEs and independent retailers,” Herbert Yum, research manager at Euromonitor International, told Hongkong Business.

According to Yum, SMEs can “either develop their platforms for their product and services to list out for consumers to choose and proceed to checkout or simply list their product and services on other e-commerce platforms,” depending on the missing pieces of their online capabilities.

“The former choice would require SMEs to invest in payment solutions or use third-party payment services, where the latter would reduce SMEs initial investment on such solution and result in higher cost of sales,” Yum added.

Amongst the digital platforms, mobile apps are the most commonly used by Hong Kong shoppers (50%), followed by a web browser on a computer (23%), and a web browser on mobile (16%), according to Visa.

As for businesses that focus on offline channels, Yum said they could invest in point of sale (POS) systems, either through a POS device or using a mobile device as a POS terminal to receive payment. Yum cited HSBC’s mobile payment service, PayMe, as an example.

“Either way, the POS terminal for them to receive digital payment would be a must for them to adapt to the ongoing shift towards a cashless society. Followed by product and services listing platforms, as well as logistic capabilities for them to deliver their goods to customers,” Yum added.

PwC Risk Assurance Partner, Gary Ng, for his part, said small retailers can tap a number of Store Value Facilities (SVF) service providers in Hong Kong which offer low-cost cashless payment services. The list of these SVFs can be found on HKMA’s website: https://www.hkma.gov.hk/eng/regulatory-resources/registers/register-of-svf-licensees/.

Will cash bid adieu?

With the growing demand for new modes of payment, will Hong Kong finally bid adieu to cash? Ng said it depends on what is being looked at.

In terms of infrastructure and customer demand, Ng said Hongkong is ready to shift to a fully cashless society.

However, that is not the case on the merchant side because, according to Ng, cash will still be used in several transactions in Hongkong, particularly amongst smaller merchants. This is backed by Visa’s Back to Business Study, which found that 16% of small businesses said they will never make the shift to digital payments only.

One of the reasons why smaller merchants are not inclined towards shifting to cashless transactions is probably because of the fees that come along with implementing electronic payments, Ng said.

“They need to pay some fees 1-5% depending on the type of payment vehicles that they're using,” he said.

Ng said financial services could play a part in easing the burden of merchants by offering cheaper payment acquiring services, which in turn, would benefit them since they will be able to acquire a larger pool of customers.

Checklist for going cashless

For those planning to change to cashless, Euromonitor International’s Yum left a checklist of what businesses should consider before adopting new payment methods.

According to Yum, businesses should first have a good understanding of consumers’ preferences; their distribution model; and the additional solutions that accompany the payment solutions they will adopt.

As for consumer preference, Yum said buy now pay later (BNPL) is the latest type of cashless payment solution to gain ground in Hong Kong—an example of this is Atome.

The payment intermediary helps retailers increase their conversation rate and checkout basket size without any additional interest fee, according to Yum.

Apart from BNPL, Ng said other popular cashless payment tools in Hong Kong include QR code
payments, mobile e-wallets, and faster payment systems (FPS).

The government is also exploring different options to strengthen the city’s cross-border payment systems leveraging the success of these platforms, added Ng.

E-CNY’s entry

The use of e-CNY in Hong Kong has been under trial since March 2021 and once it has been fully integrated into the city’s payment system, Yum said it will “improve the payment efficiency without changing local residents’ payment habits.”

This is because retailers, consumers, and companies offering digital payment solutions do not need to take an extra step to accept e-CNY.

“They only need to mitigate the exchange rate risk when accepting e-CNY, certain hedging might be required for them to mitigate such risk,” Yum warned.

For consumers who do not make a large number of transactions or purchases using e-CNY, however, the exchange rate issue shall not create a significant impact on consumers, the expert added.

Overall, its entry of e-CNY “would better encourage both Hong Kong and mainland Chinese consumers to spend more.”

Additional solutions

Just like what Yum said, Ng said it is important for retailers to adopt digital solutions or methods that do not only serve the purpose of facilitating payment but also offer additional and innovative services.

Based on a Visa study, up to 90% of Hong Kong consumers have participated in loyalty and rewards programs in 2021.

Citing the success of YUU and Cathay Pacific's Asia miles, Ng advises businesses to also provide or offer loyalty programs for their customers as it will help attract and retain customers.